Consultant s Review of Fiduciary Practices. An introduction for AIF Designees to the new fiduciary consulting assistance document

Transcription

1 Consultant s Review of Fiduciary Practices An introduction for AIF Designees to the new fiduciary consulting assistance document

2 fi360 Learning Objectives: Articulate the historical development of the fiduciary practices. Recognize the roles of CEFEX and fi360 in the process of conducting fiduciary reviews and assessments. Recognize the main differences between the Consultant s Review of Fiduciary Practices (CRFP) and Consultant s Assessment of Fiduciary Excellence (CAFE). Utilize the CRFP to conduct high-level reviews of investment stewards. 2

3 Practices and Criteria Development Review 1999 fi360 Established 2003 Prudent Investment Practices Handbook published (Practices only) 2006 Prudent Practices for Investment Advisors, Stewards, and Managers handbooks and Legal Memoranda 3

4 Practices and Criteria Development Review 2008 Prudent Practices for Investment Advisors and Stewards and the Legal Memoranda 2013 Significant updates to Prudent Practices for Investment Advisors and Stewards handbooks and Legal Memoranda 4

5 CEFEX and Introduction of Assessment Tools Established in 2006 Logical progression for investment professionals with fi360: 5

6 CEFEX and Introduction of Assessment Tools Three Levels of Assessment: 6

7 CEFEX and Introduction of Assessment Tools AIF Designees: - Permitted to conduct Level 2 assessments utilizing the CRFP tool - Reviews are informal and fundamentally engaging - Consultations with fi360 or CEFEX is not required 7

8 CEFEX and Introduction of Assessment Tools AIFA Designees: - Qualified to conduct Level 2 reviews and Level 3 assessments - CRFP: used for reviews (Level 2) - CAFE: primarily for assessments (Level 3) sometimes used for reviews (Level 2) 8

9 Types of Engagements Level 1 Level 2 Level 3 SAFE Review Assessment Certification Consulting Opportunities Annual Revenue CRFP CAFE CAFE Source: CEFEX 9

10 Development of the CRFP Tool CAFE CEFEX- Assessment of Fiduciary Excellence CRFP Consultants Review of Fiduciary Practices The CRFP is a simplified CAFE. Practical experience with the CAFE since 2006 has enabled us to make continual improvements to the CAFE tool, from which the CRFP was derived. Development of the CRFP was driven by the need for a simpler assessment tool for use at Level 2, particularly for assessed entities that are smaller and less complex 10

11 Using the CRFP an Overview Part I Preparing for the Review: - Sets the boundaries of the engagement including what is covered and what is not covered - Establishes the objectives and scope Part II Data Gathering: - Relevant background information - Documentation that substantiates adherence to the Practices/Criteria - Evidence section under each question provides guidance on what is necessary to meet the requirements - Tables simplify organization of data Part III Finding and Conclusions: - Practices conforms / does not conform checklist 11

12 Using the CRFP Part I Part 1 Preparing for the Review To be completed with the entity being reviewed Key objectives: - Scope of engagement - Legal and practical limitations - Attorney-client privilege - Source of payment Ensure client understands both what is and what is not being reviewed 12

13 Using the CRFP Part II Part II Data Gathering: - Background: Steward and designee/analyst information ID other service providers General administrative information - Documentation: Fiduciary File Essential documents e.g., IPS, service provider agreements Recommended documents e.g., performance reports, committee minutes 13

14 Using the CRFP Part II Part II Data Gathering - Demonstration of Fiduciary Responsibility: Addresses most of the Practices in Step 1 Evidence sections provide excellent guidance regarding conformity - Asset Allocation Strategies: Timing and distribution of cash flows Participant demographics Asset class analysis Comparison of actual asset allocation to that specified in the IPS All tables do not apply to all stewards 14

15 Using the CRFP Part II Part II Data Gathering: - Investment Policy Statement: Practice 2.6 Criteria form a checklist of essential components Are socially responsible investments being utilized? - Due Diligence Procedures: Table 4 captures investment due diligence procedures or screens Implementation of investment strategies Safe harbors 15

16 Using the CRFP Part II Part II Data Gathering: - Custody, Brokerage, and Other Service Providers: Due diligence process for selecting other service providers SMAs and related execution questions - Monitoring and Performance Reports: Addresses all of the Practices in Step 4 When was a service provider last replaced? Table 15 captures investment-related expenses Fiduciary liability insurance 16

17 Using the CRFP Part III Part III Findings and Conclusions: - Checklist requiring a determination of whether the entity being reviewed: Conforms Conforms but with opportunity for improvement Does not conform - CRFP Reference column lists the related question(s) from Part II - Comments box should be used: To describe important or unique information related to Practice When Conforms, OFI or Non-conformity are checked - Part III should be the basis for a final report 17

18 Electronic Assessment Forms Available through (not fi360!) Unique EAF is established for each review client EAF significantly reduces burden on client and designee: - Time-saving when CRFP version is changed while a review is underway Version changes do not require data re-entry! Designee can offer client secure access to CEFEX website to: - Start data entry in CRFP - Upload review documents Assessment data will migrate from CRFP to CAFE as client involvement increases 18

19 EAF View 19

20 Review Output Full EAF including Designee comments: Can exclude Analyst comments if necessary Part 3 only, including comments (coming soon) Designee can provide separate fi360 reports to accompany this output: fi360 Monitoring Report fi360 Fee & Expense Report Source: CEFEX 20

21 EAF Fees When sold by CEFEX: - Designee pays $500 per ecrfp established. When sold by Designee: - Designee pays $400 for first ecrfp in 12 months, and $75 for each additional ecrfp in that 12 month period. 21

22 If You Have a Review Prospect and Plan to use the EAF 1. Contact Chuck at cburger@cefex.org for CEFEX Designee Agreement 2. signed agreement and client info to Chuck: - Name of plan, name of liaison officer, address, does client want on-line access? 3. Pay fee (check, credit card, or invoice) 4. Receive login ID and password - Client receives login ID and password (optional) 5. Basic training on EAF from Chuck 22

23 Steward CRFP vs. CAFE The following Steward CAFE items are excluded from the associated CRFP: - Certain administrative data - Questions 8.a) 8.c): Capital market inputs and calculation of risk/return - Table 1: Cash Flows - Questions 10.b) 10.d): Risk/return calculations - Questions 14.a) 14.d): Investment options due diligence - Tables 5 & 6: Tables remain, but # of clients/participants and asset levels not required - Table 7: Other managed investments and balances 23

24 Steward CRFP vs. CAFE Continued The following Steward CAFE items are excluded from the associated CRFP: - Tables 8-11: Safe harbor details - Question 16.e): Principal transactions - Tables 12-14: Service provider details - Questions 24 & 25: DRP and client data safeguards - Schedule A: Service agreement disclosure checklist [408(b)(2)] - Schedule B: ERISA 3(38) Investment Manager checklist - Schedule C: Participant disclosures checklist [404(a)(5)] - Part 3: Practices conforms / does not conform checklist; Criteria have been removed 24

25 What Comes Next? Review your own practice utilizing the CRFP Introduce the CRFP to clients and prospects Pursue and obtain a CEFEX certification Contact CEFEX or fi360 with questions 25